Correlation Between Steel Authority and Steelcast

Can any of the company-specific risk be diversified away by investing in both Steel Authority and Steelcast at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Steel Authority and Steelcast into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Steel Authority of and Steelcast Limited, you can compare the effects of market volatilities on Steel Authority and Steelcast and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Steel Authority with a short position of Steelcast. Check out your portfolio center. Please also check ongoing floating volatility patterns of Steel Authority and Steelcast.

Diversification Opportunities for Steel Authority and Steelcast

-0.25

Correlation Coefficient

Steel Authority  Steelcast

Very good diversification

The 3 months correlation between Steel and Steelcast is -0.25. Overlapping area represents the amount of risk that can be diversified away by holding Steel Authority of and Steelcast Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Steelcast Limited and Steel Authority is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Steel Authority of are associated (or correlated) with Steelcast. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Steelcast Limited has no effect on the direction of Steel Authority i.e., Steel Authority and Steelcast go up and down completely randomly.

Pair Corralation between Steel Authority and Steelcast

Assuming the 90 days trading horizon Steel Authority of is expected to under-perform the Steelcast. But the stock apears to be less risky and, when comparing its historical volatility, Steel Authority of is 1.39 times less risky than Steelcast. The stock trades about -0.1 of its potential returns per unit of risk. The Steelcast Limited is currently generating about 0.12 of returns per unit of risk over similar time horizon. If you would invest  66,745  in Steelcast Limited on August 31, 2024 and sell it today you would earn a total of  13,400  from holding Steelcast Limited or generate 20.08% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Against
Strength	Insignificant
Accuracy	98.39%
Values	Daily Returns

Steel Authority of  vs.  Steelcast Limited

Steel Authority

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Steel Authority of has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of weak performance in the last few months, the Stock's basic indicators remain comparatively stable which may send shares a bit higher in December 2024. The newest uproar may also be a sign of mid-term up-swing for the firm private investors.

Steelcast Limited

Risk-Adjusted Performance

9 of 100

OK

Compared to the overall equity markets, risk-adjusted returns on investments in Steelcast Limited are ranked lower than 9 (%) of all global equities and portfolios over the last 90 days. Despite somewhat uncertain fundamental indicators, Steelcast sustained solid returns over the last few months and may actually be approaching a breakup point.

Pair Trading with Steel Authority and Steelcast

The main advantage of trading using opposite Steel Authority and Steelcast positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Steel Authority position performs unexpectedly, Steelcast can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Steelcast will offset losses from the drop in Steelcast's long position.

The idea behind Steel Authority of and Steelcast Limited pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Idea Breakdown module to analyze constituents of all Macroaxis ideas. Macroaxis investment ideas are predefined, sector-focused investing themes.